The biggest access gap?

If we were to stack up developmental needs side-by-side, how would access to finance compare? Elisa Sitbon of CGAP discussed this precise question[1] using global averages. Elisa found a clear contrast at the global level: 40% of the world’s bankable population has access to savings or credit accounts, a far smaller percentage than have access to other kinds of basic services.

We decided to carry this thought experiment a bit further and break down the data at the regional level as well. It is of course impossible to do a true apples-to-apples comparison of sectors as diverse as education, health, water, sanitation, communications and finance. But bear with us a second: the table below attempts this in an admittedly crude way (click on the image for a larger, easier-to-read version). All metrics are expressed as a percent, with 100% reflecting either full coverage of the population (e.g. for the access to finance, education, water, sanitation and communications measures) or, where that is not meaningful, a level that is equal to the average for developed countries (e.g. for GDP per capita and infant mortality measures). Thus, the lower the measure, the larger the fraction of the population that is not benefitting or the bigger the gap with the corresponding level in developed countries.

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What stands out for us is how low the figures for access to finance are relative to the other sectors. In fact, only usage of the internet—a nascent sector, really, and keep in mind this data is for 2008—is glaringly lower than access to finance. Just looking at world averages, 46% of people do not have access to credit or savings services from formal financial institutions, while 90% of children go to primary school, 87% of people have access to clean water, and 61% have mobile phones. Again, there are complex measurement problems we are not considering here (quality of schooling, reliability of water supply, people holding multiple SIM cards or bank accounts), but the gap is no doubt large.

If we look by region, the indicators confirm the myriad ways in which Sub-Saharan Africa trails other regions. Interestingly, though, financial access is the only indicator in which all the developing country regions fall below the global average, exposing the large gap relative to developed countries. The financial access dilemma has vexed lower and middle-income countries alike: there is little apparent correlation between the income per capita and access to finance indicators across developing country regions.

South Asia shows the highest rate of access despite having the second lowest income per capita. We can attribute this mainly to the robust state banking system in India and the spread of microfinance institutions in Bangladesh.

In the last few years, the usage of mobile phones and local retail stores as alternative delivery channels for financial services has begun to lower the formidable cost barriers to financial institutions seeking to serve either the poor (who transact in small amounts) or those living in remote locations. Mobile phone penetration exceeds financial access levels in nearly all of the regions above, creating hope that this technology will speed the progress of financial inclusion.

The financial access gap, more than any other access gap shown in the table, can be addressed through private sector initiatives that exploit new technology-based opportunities.